Inside Wall Street: Achillion Is a Small Biotech on the Verge of Big Moves

It seems like the growing ranks of emerging biotechnology companies are always behind the eight ball in building up their financial resources to fund extensive research and clinical studies for novel therapies. The fountain of innovative drugs for Big Pharma, biotechs usually seek the help of financiers, venture capitalists and the like. But biotechs that are well on the road to advanced development of drugs resort to another funding strategy: Striking partnerships with large drugmakers.

One such company is Achillion Pharmaceuticals (ACHN), which had raised some $27 million last year but now needs a partner to advance development of its three products. One of them is a possible next-generation drug to fight chronic hepatitis C virus, an inflammation of the liver that has infected some170 million people worldwide.

"A Partnership or Two"?

"We are in the midst of doing several [Phase 2 clinical trials]for our products, so we have been in advanced talks with several of the major global pharmaceutical companies for almost a year now to forge one or two partnerships," says Michael D. Kishbauch, Achillion's president and CEO. He expects that sooner rather than later "we will sign a partnership or two" to fund the clinical studies and complete development of its hepatitis programs, a potentially multibillion market.

Major pharmaceuticals that are involved in or plan to participate in developing new treatments for hepatitis include Pfizer (PFE), Merck (MRK), Bristol Myers-Squibb (BMY), GlaxoSmith, (GSK) Novartis (NVS), Roche (RHHBY) and Abbott Laboratories (ABT). Kishbauch declines to identify which of the companies he's in discussions with because "our negotiations are in a very advanced and delicate stage right now."

Several of the drugmakers want to partner with Achillion on all three of its products. Those are ACH-1625, a potential next-generation treatment for chronic hepatitis C virus that some analysts expects will be the "best-in-class" treatment; ACH-1095, an "NS4A antagonist" also for fighting the hepatitis virus; and ACHN-2684, a molecule that targets NS3 protease found to be effective against a broad range of natural hepatitis variants.

However, Kishbauch says he would prefer having different partners for each of the drugs to make sure they all get all the attention and support they require. He's negotiating for a guarantee that the partners will advance the products to a level equal to standard-of-care products.

Once-a-Day Dosing

Some analysts believe Achillion's hepatitis drugs would be superior to products now in the market, such as interferon and Vertex Pharmaceutical's (VRTX) Telaprevir, which is being marketed by Johnson & Johnson (JNJ). The demonstrated potency and safety of Achillon's ACH-1625 looks very good," says Jason Kolbert, analyst at National Securities, who rates Achillion's stock, now at $2.20 a share, a buy. It's down from its 52-week high of $3.89 reached on Dec. 16, 2009. "I believe the best is ahead for Achillion because of its strong hepatitis program," says Kolbert.

In the recent IB clinical trials on ACH-1625, safety and tolerability in patients continued to be excellent, notes Kolbert. And the trials also showed "meaningful reductions in the key pharma paradigm for antiviral therapy," he adds. Telaprevir requires twice-a-day dosing, he notes, while ACH-1625 needs only once-daily dosing.

Kolbert says when the Phase 2 clinical trials for ACH-1625 get under way -- and when clinical studies for the two other drugs start next year -- "Achillion's stock will see a sharp rise in valuation."

Edward Nash, senior analyst at Roth Capital Markets, says with the data he has seen on ACH-1625, the drug has a "strong chance of being as potent as, if not more than, Telaprevir." Importantly, he adds, the dosing schedule and better side-effect profile make Achillion a "very attractive partner candidate for the big pharmaceuticals."
Multibillion-Dollar Market

Achillion's clinical performance with ACH-1625, says Nash, should attract investors looking to be involved in the important fight against hepatitis C virus. He rates the stock a buy with a 12-month price target of $12. If that price objective looks mighty high, it isn't when you consider the multibillion dollar hepatitis market and the probability that Achillion will find a partner or two to move its potential winners to market.

The three largest institutional investors in Achillion are Janus Capital Management, which owns a 12.95% stake; Clarus Ventures, with 11.39%; and Wellington Management with 6.12%. Janus and Wellington bought more shares, and none sold stock as of Mar. 31, 2010.